Central banks’ exorbitant power

Expansionary monetary policies over the past 10 years have enabled governments to conduct highly expansionary fiscal policies, have driven up asset prices (equities, real estate, corporate value) considerably, have made companies, households and peripheral euro-zone countries solvent and have squeezed risk premia. The slightest signal from central banks that they would exit these policies therefore has a multiplied effect on financial markets and the economic outlook. This gives a considerable role not only to central banks’ actions, but also to the ir communication. But is that reasonable? Can we accept a situation where a few poorly chosen words from a central bank can cause financial markets to move drastically? Where a change in central bank policy could cause economies to collapse? This exorbitant power of central banks is clearly problematic.